The sharing economy has begun to disrupt industries of all kinds, especial those that involve the rental of time, equipment, and space. Real estate is the latest industry that may undergo a shift in business thanks to the rise of coworking spaces in city neighborhoods.
Coworking companies like the eminently popular WeWork allow for small businesses, startups, freelancers and entrepreneurs to rent space in a collaborative, comfortable and affordable setting. For the individuals who work there, it saves money in office leasing and comes with perks like great location, fast internet, and even health insurance.
At the same time, coworking spaces let individuals and businesses network and collaborate with like-minded folks, or even better, folks that they might never think to share ideas with to begin with. It essentially embodies all of the assets of a great office without the high overhead investment.
What, then, does this mean for the real estate industry? Those accustomed to long-term leasing may be troubled by the shift away from traditional office spaces. But the rising prominence of coworking space is also an opportunity for real estate agents and developers alike.
Here are three ways coworking spaces are likely to impact the real estate industry.
Coworking spaces are a lot like Starbucks, not only because they are hubs for creative professionals and independent workers, but because they can vastly change the face of a neighborhood. Coworking spaces create buzz and excitement, and may draw in new residents and commuters to up and coming neighborhoods.
An influx of residents and commuters means that local businesses in the periphery will benefit from more foot traffic and patronage. It also helps that coworking spaces attract artistic-minded and entrepreneurial types, who bring to a neighborhood a new type of energy and community investment.
For example, coworking space Urban LINC opened in Madison Square, NYC in a renovated library as a way to improve the economic opportunities in the neighborhood by introducing new businesses to the area.
Growing in size and value
Of course, there’s risk in leasing coworking spaces, which are inherently unstable. What if, as in the 90s, the startup bubble burst and a multitude of small businesses went under? There is always a hint of a possibility that the tides of luck could turn on entrepreneurs, and coworking spaces lose their value.
Fortunately, things don’t seem to be headed in this direction. In fact, it’s been quite the opposite: coworking spaces have been booming consistently, with space doubling every year for the past five years. Leading coworking space company WeWork’s space added together is already 30 percent larger than the Empire State Building. It’s also valued at a stunning $15 billion, on par with well-established commercial landlords.
This means that whether the relationship between the real estate industry and coworking spaces is a positive one or not, the deals are growing with no sign of slowing — and landlords thus far have been game, even covering up to 75 percent of the initial build-out. After all, coworking spaces are competing with office space, a hot and essential real estate commodity.
Another risk is that coworking spaces could be priced out of their trendiest locations. If this happens, coworking companies may consider partnering (or even becoming) real estate developers in their own right instead of renting.
A model to emulate
One thing is abundantly clear: the traditional office is losing its appeal. As more of the workforce shifts to freelance and corporate demand declines, more people will gravitate to the services coworking spaces offer. This new model may just define the future of work. Given their benefits, who is to say those accustomed to coworking will ever want another type of office down the line?
Real estate developers paying attention can use this model to their advantage. By offering more flexible spaces with malleable leases and building coworking-style office infrastructure, new buildings can piggyback off the success of coworking spaces. This way, businesses transitioning from coworking space to “traditional” offices will be satisfied and more willing to stick around.
Whatever the case, shared offices are, for many, a welcome addition to city real estate. If the industry can acclimate to this new model, it may just heighten its ability to serve an increasingly collaborative, cloud-based and global workforce.
Featured image: Epicantus via Flickr